Iraq oil development swift despite politics

Development of Iraq’s oilfields by foreign oil companies is progressing swiftly despite the lengthy process of government formation after Iraqi elections in March, a senior Statoil executive said on Tuesday.

“The major oil companies are starting to move forward at a very high speed. Oil companies are tendering huge contracts and making commitments in the market,” said Kjetil Tonstad, Statoil’s vice-president for International Exploration and Production, Middle East. “Execution is going full speed ahead despite the political situation.”

International oil firms have signed up to deals that could vault Iraq into the top three of world oil producers in 2017. But final deals were signed just months before elections in March, leading to concern that politics could delay work.

Iraq is in a political vacuum after an inconclusive vote, with former Prime Minister Iyad Allawi winning a slim lead over Prime Minister Nuri al-Maliki and neither side yet to conclude tie-ups with groups that would give them a majority.

“Both Maliki and Allawi are positive on the contracts,” said Tonstad, talking to reporters on the sidelines of an energy event. “No questions were raised in the election campaign or after questioning the contracts. A contract is a contract, it’s awarded and then you have an obligation to go ahead.”

Norway’s Statoil and Russian partner LUKOIL would increase output to 120,000 barrels per day (bpd) at Iraq’s West Qurna phase two oilfield in 2012, Tonstad said. That was the level set by Iraq for first commercial production at the field.

The consortium has already started issuing tenders for work at the field, he said. He declined to give further details.

Lukoil and Statoil sealed the 20-year deal to develop the West Qurna Phase Two, a 12.9 billion barrel oilfield in the south, in an auction in December.

In a presentation to an industry event, Tonstad hailed the opening of Iraq’s oilfields to foreign investment last year as marking the largest opening in an oilfield province since the collapse of the former Soviet Union.

“We still haven’t captured the significance of this historical moment,” he said.

Plans to reach around 12 million bpd of output under the contracts in 2017 were feasible, but faced a myriad of challenges, he said. The development would mark an unprecedented build in capacity in the oil industry, marking an increase of around 10 million bpd from Iraq’s current capacity of 2.5 million bpd.

Challenges included security in a country emerging from war and sectarian violence, access to water, and limited construction capacity and workforce availability, he said.

The ability of the world oil market to absorb 10 million bpd of increased output in such a short time was also unclear, he said.

“From my point of view, the fields can deliver, the infrastructure can be dealt with, but can the market take all this oil? And if not, does Iraq want to invest billions of dollars in building capacity that would remain idle?”

Statoil was evaluating the possibility of taking part in an upcoming bidding round for Iraqi gas fields, he said.